A critical data week for the US dollar
The US dollar faces key data this week, beginning with Monday’s ISM manufacturing PMI and culminating with the May employment report on Friday. Our positioning metrics suggest markets are very long USD heading into these releases, and CFTC data released Friday showed AUD and JPY shorts at new recent extremes. We expect the manufacturing ISM to improve to 51.0 from 50.7 last month, with our economists having raised their estimate following last week’s strong Chicago PMI release. As for the employment report at the end of the week, we expect payrolls to have advanced by 185k in May, an acceleration from last month’s 165k increase and better than consensus but still implying a slowing of the 3-month moving average to 163k from 212k. While data in line with our estimates would not in itself warrant an early Fed move to taper asset purchases, it would still leave risks skewed in favour of less rather than more Fed accommodation and would probably be sufficiently robust to maintain the overall bullish market consensus with respect to the USD. We see scope for USD to regain momentum vs. the CHF and JPY coming out of this week, although we are more neutral on the USD vs. the EUR and commodity bloc currencies.
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BNP Paribas